SPX Credit Spread Trader

Quote from jeffm:
By the way, there is an article in this month's Futures magazine that talks specifically about ES vs SPX options, and the benefits of SPAN margin.
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Thanks for the tip Jeff.

I'm probably getting increasingly cynical as I get older but I've found that regardless of industry or topic, subscription based magazines are generally behind the times and have little to offer over alternative sources such as the Internet where you can delve much deeper into topics - links and search engines permitting. I'm sure Phil's recent published article is the exception that proves the rule :)

BTW, if the article you mention is by John F. Summa, the eternal one man ES options evangelist and disseminator of options mythology, I'll give it a miss thank you!

The topic of ES options seems to come up every couple of months and as such, just about every conceivable aspect has been covered in the past right here on your favorite ET:

July 2004: http://www.elitetrader.com/vb/showthread.php?s=&threadid=34970 (vintage Riskarb in this one :D)

December 2004:
http://www.elitetrader.com/vb/showthread.php?s=&threadid=42664

May 2005:
http://www.elitetrader.com/vb/showthread.php?s=&threadid=49130

August 2005:
http://www.elitetrader.com/vb/showthread.php?s=&threadid=54216

September 2005:
http://www.elitetrader.com/vb/showthread.php?s=&threadid=56186

etc.

I believe Phil was exploring ES options with his Yahoo! group before this thread got started.

Liquidity has steadily improved over the months. Not much excuse left.

MoMoney.
 
Quote from jeffm:

The article also pimps ER2 options over SPX and ES. Here are some numbers from today's market:

ES ~ 1254, VIX 16.6
15% OTM is 1065, so I'll drop that to 1050
JUL 1050P 0.85 bid 1.00 ask, but that ask is only 1 contract. Probably more like 0.85 x 1.15.
Contracts offered by the MMs on each side, 300
Volume today on the 1050P, 532 contracts
Margin to sell 1 naked ~ $1000
Margin will vary, but this is good enough for our little demo.
Credit to sell 1, 0.85 * $50 = $42.5
Profit on margin 4.2%

ER2 ~ 686
15% OTM is 583, so lets look at the 580P
JUL 580P 0.90 x 1.30
Contracts offered by the MM on each side, 75
Volume today on 580P and 585P, 0 contracts
Margin to sell is also ~ $1000
Credit to sell 1, 0.90 * $100 = $90
Profit on margin 9%

The reason of course is that ER2 is $100 per point, compared to $50/pt for ES. Yet the margin is almost the same for both.
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this is largely a function of the rut's nearly double volatility of the sp. more premium nonetheless, thanks for the analysys.
 
Quote from nravo:

Apologies for being slightly off topic, but I'm here and I figured there were some learned posters and its a related topic. The Question; What is a good site, software or service to determine the largest one day upward moves, intraday and overnight, in the S&P futures? We all know the downside move could be a gap or move down of up to 24 percent and a VIX spike up to 160. (Which is why we don't write naked puts.) But what about an upside, if you were, say naked calls. What is the 24-hour risk there? What were the top ten upward moves? 8%? 10%?
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I wasnt trading before 1999, so the biggest gains i remember for that period were like 2 60-75 point rallies back in 2000-2001, but those were intraday.
 
Quote from momoneythansens:

subscription based magazines are generally behind the times and have little to offer over alternative sources such as the Internet where you can delve much deeper into topics
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Agreed. Everything in that article, along with a couple of others, has already been discussed here. But I do need something lightweight to carry into the reading room LOL

There is also an article about premium sellers and how they are ripe for a fall if volty picks up. But in the same segment, they talk about Ansbacher and his 10+ years of double digit returns. Whatever...

BTW, if the article you mention is by John F. Summa
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No, it was written by a different person that I have not heard of before. A private trader of some sort. However, I do share your opinion of Summa. I even traded (i.e. lost money) with him on OEX options in '98. :) That was before he bought into his "85% of options expire worthless" mantra. Which is true, but you do need a bit more than that to build a trading system...
 
Quote from jeffm:

But I do need something lightweight to carry into the reading room LOL
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True, reminds me of a quote from CSI. Grisom says something like: "When you read from a monitor you have to lean in. When you read from a book, you can lean back. I prefer to lean back."


I even traded (i.e. lost money) with him on OEX options in '98. :)
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Ouch. You live to tell the tale though...

Didn't mean to turn the thread into chit-chat! Sorry folks :)
 
Does anyone have experience trading close to the money (CTM) credit spreads (10-15 pts), within a 30 d expiration period, by following simple TA approach, such as 5,5 stochastic crossovers?

I back-tested the past year and found approximately a 70% win rate...Of course you wouldn't want to bet the farm on this....but with a fairly attractive r/r (usually credits of 2.0+ for a 5 pt spread), it may be an approach one could use to supplement FOTM spreads. Anyone with thoughts or experience with such an approach? Thanks
 
Quote from Prevail:

you probably are aware of this but just in case, there are overnight and day limits of how far the sp can move. currently the overnight limit is 2.5 percent and the day limit is 5 percent. this does not guarantee liquidity but does help in understanding what is possible and gives you time to maneuver, or at least attempt to.

most here in this thread would have been out of their positions before the real '87 crash as the market was declining for a week before the gap on monday.
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But let's say the S&P (cash was up) 8 pecent in one day, which I believe has happened, although I could be wrong. Would the S&P futures somehow have a cap of a 5% increase until the next trading day, seems had to image the futures would have a cap but the cash market wouldn't.
 
Going back to my put ratio spread roots and gonna include some of the prop trades I do with them here on the ES options. (Remember ES units are * $50).

JULY 100*200 Put Ratio Spread:

BTO 100 JULY ES 1200 Puts @ 8.50 ($42,500)

STO 200 JULY ES 1175 Puts @ 5.50 ($55,00)

Net credit = 2.50 ($12,500)

Breakeven at expiration = 1147.50 on the ES for July.

The reason I like Put Ratio Spreads is that I have long deltas in front of the short puts. So if the market drops hard, I do not suffer a large paper loss since I am long deltas so I have many choices. Also I have multi-directional profit potential.

If the market stays above 1200, I make $12,500

If the market is between 1200 and ~1175 I make anywhere from $12,500 to $137,500 if market is right at 1175 at expiration.

Between 1175 and 1147.50, I make between $12,500 and $0 at expiration.

Below 1147.50 at expiration I start losing money fast.

So my profit zones are from up infinity to 1147.50. Moreover, if the market is falling, I can close out the position for a small loss before it hits the short strike or short futures into the drop to hedge moves to 1175 and below.

I can also buy back the extra 100 short puts if the cost is covered by the credit and I feel that the ES will stay bearish. I then convert to a bear call spread which I can close for a profit or small loss and get out with little damage.

The position is susceptible to HUGE IV spikes since I am short 2x as many shorts as I am long but time decay works more in favor as well.

I was trading put ratio spreads before I moved into credit spreads and with ES and SPAN/risk-based haircut, I figured I would move back in. This way I do not fear black swans too much since I have more adjustment options AND, a move to my long or short strike close to expiration is actually a lottery ticket.

I will update you on this trade as it progresses :).
 
Paging Rally.... please report to the front desk, you have a visitor.

Quote from scienter:

Does anyone have experience trading close to the money (CTM) credit spreads (10-15 pts), within a 30 d expiration period, by following simple TA approach, such as 5,5 stochastic crossovers?

I back-tested the past year and found approximately a 70% win rate...Of course you wouldn't want to bet the farm on this....but with a fairly attractive r/r (usually credits of 2.0+ for a 5 pt spread), it may be an approach one could use to supplement FOTM spreads. Anyone with thoughts or experience with such an approach? Thanks
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